The long-term rental laws in Spain have been undergoing reformation over the past few months and thus require clarification on the changes made to the laws. Some of these reforms were to take effect from 19 December 2018 when they were passed into law by a Royal Decree, however, they were repealed and the laws rescinded on 23 January 2019 after only being in effect for 35 days. Shorty after this back and forth process, the government on 1 March 2019, went ahead to pass another set of laws which are also applicable to long-term rental contracts; it is the general hope that these laws remain effective for a considerable period as there are changes being expected in the Spanish government and Spain’s political environment.
These changes in the legal requirements for long-term rentals have led to some uncertainty in the market, which is just recovering thanks to the recent investment in Spanish real estate, since it is very important for landlords especially those with a legal landlord status as they have to be very cautious about the types of contracts and conditions included in the long-term rental agreements which they enter into. Landlords and tenants are abiding by the regulations that would be discussed below as they are the most significant changes to the Ley de Arrendamientos Urbanos (LAU), this is the pre-existing Spain’s Tenancy Act of 2013 on urban and long-term rental which has been in effect for several years.
The main changes which parties to any long-term rental contract need to pay particular attention to include:
Duration of long-term rentals in Spain
In the past, the length of time for which a long-term rental contract can legally be in effect has been three years after which there is a renewal period of one extra year based on the 2013 regulations. This contract duration has now been increased from the three year period depending on the status of the landlord; physical or individual landlords are allowed to enter into a long-term rental agreement for a compulsory duration of five years after which the contract can be renewed for three more years. Legal landlords (generally company representatives) are obligated to enter a long-term rental contract for a minimum duration of seven years with a renewal period of three years after this initial duration has lapsed.
Deposit payment on long-term rentals
When obtaining a long-term rental in Spain, tenants are legally required to pay a deposit which is equal to one month rental cost of the property being rented, however, landlords generally request that tenants pay a deposit of about two months (or more in some cases) of the rental cost just as a form of guarantee to cover any financial risk attributed to the tenant especially if such tenant is not a Spanish resident. For legal landlords only, this deposit has now been limited to an amount equal to two months rental costs as individual landlords are still allowed to request a deposit greater than the rental costs for a two month long-term rental period.
Real estate agent commission
There are cases where real estate agents are used to broker the long-term rental agreements and as such a fee or commission is to be paid to such agent, in previous years, this fee was either split between the tenant and the landlord or paid completely by the tenant. Based on the changes made to the laws recently, legal landlords are now obliged to pay any such fees and commissions to the real estate agents.
Eviction laws for long-term renters
Landlords are allowed to evict tenants who do not abide by the terms of the long-term rental contract especially with regards to the payment for the applicable rent, however, this process may take a long time and as such, landlords have been advised to take out insurance policies to cover the costs incurred and associated risk of this process. The new laws also include the process of accessing the level of vulnerability of such tenants and their families on a social scale. This assessment is to be conducted by the Social Services after which a recommendation is to be made to the court depending on the situation of the tenant. For example, in a situation where the tenant is considered socially vulnerable, the Social Services can suggest that the court suspends any actions to evict such tenant until their situation can be rectified. This period during which measures need to be put in place to support such vulnerable tenants is limited to a period of one month where the landlord is a physical individual or two month is a situation where such landlord is a legal representative of a company.
Similarly, in situations where the tenant dies, the family is a legally allowed to take over the long-term rental agreement for the remaining duration if they are considered vulnerable. Some examples of such situations of vulnerability include age, either under aged children or adults over 65 years old, or disability, which could be mental or physical.
Property transfer tax on long-term rental contracts in Spain
The regulations go further to clarify that property transfer taxes are not applicable on rental contracts for residential use. This means that long-term rental contracts for residential purposes are not subject to such tax payment.
Restriction on sale of properties under long-term rental
For landlords who may wish to sell their properties which are still under a long0term rental contract, a restriction has now been placed on such actions thus requiring the landlords to wait until the end of the applicable long-term rental period before any such sales can take place regardless of whether the long-term rental agreement was recorded at the Land Registry or not.
Automatic renewal of long-term rental period
As stated in the section covering the duration of long-term rentals above, there are periods after the initial contract lapses during which the contract is automatically renewed for a pre-determined time frame. These tacit renewal periods can only be terminated if the landlord gives a notice four months before the contract ends and if the tenant gives a notice two months before the tacit renewal of the long-term rental contract.
Properties available as holiday rentals
In areas consisting of several residential properties, the use of any property for holiday rentals as opposed to long-term rentals was to be voted upon by the community of property owners in that area and a decision agreed upon only if this was unanimous. The laws have now been amended, allowing for a decision to be made when a vote of 3/5 (three out of five) majority is reached. Additionally, these community of owners now have the power to vote on the increase of the communal quota for landlords who use their properties for such holiday rentals. This increase in quota for landlords with holiday rental properties is however capped at a maximum of 20%.
Although the aim of these changes in the laws guiding long-term rental agreements and other such contracts is to improve the market conditions and promote fairness when establishing such long-term rental contracts, these benefits may not be experienced by all the parties involved in long-term rental process. These new laws may cause a rise in the prices of long-term rental houses as the landlords and property owners may not be willing to lease their properties on such long-term agreements thus demanding higher rental rates as a motivation to enter such long-term rental contracts for five to eight years. Such conditions along with those that may arise if the landlords begin to put in place discriminatory measures to screen prospective tenants such as age (tenants may be refused if they are considered to be too young or too old), employment status (landlords may be more receptive to tenants with higher paying jobs) and disability (tenants with any form of disability may not be offered such long-term rental options); would definitely be a challenge in for prospective tenants and their families who require such long-term rentals. This may also lead to a rise in the use of illegal means to obtain long-term rental agreements or an outright avoidance of the applicable laws by both landlords and tenants.
Prospective tenants, landlords and property owners offering or interested in long-term rental properties in Spain would do well to keep these changes in mind and apply them appropriately so as to remain law abiding citizens. It is also very important for such prospective tenants from other international markets to understand these laws as they may differ from the laws which hold in their countries of prior residence.